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Suppliers’ Merger and Consumers' Welfare

Author

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  • Eric Avenel

    (Universite de Rennes I and CREM (UMR CNRS 6211))

Abstract

This article explores the consequences of a suppliers' merger on consumers' welfare when the product is sold to consumers by independent retailers competing à la Cournot. The literature shows that under the standard assumptions of private contracting and passive beliefs, there is no impact at all. I show that this unintuitive result strongly depends on the implicit assumption that suppliers have infinite capacities of production. Indeed, assuming that suppliers face a capacity constraint and that retailers hold out-of-equilibrium beliefs compatible with this constraint, I show that the merger raises the price on the final market and reduces consumers' welfare.

Suggested Citation

  • Eric Avenel, 2012. "Suppliers’ Merger and Consumers' Welfare," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 15(1), pages 1-21, Summer.
  • Handle: RePEc:ekn:ekonom:v:15:y:2012:i:1:p:1-21
    as

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    File URL: http://www.ekonomia.ucy.ac.cy/RePEc/ekn/ekonom/papers/01-12S.pdf
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    References listed on IDEAS

    as
    1. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    2. Patrick Rey & Thibaud Vergé, 2004. "Bilateral Control with Vertical Contracts," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 728-746, Winter.
    3. Eric Avenel, 2012. "Upstream Capacity Constraint and the Preservation of Monopoly Power in Private Bilateral Contracting," Journal of Industrial Economics, Wiley Blackwell, vol. 60(4), pages 578-598, December.
    4. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
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    Cited by:

    1. Eguia, Jon X. & Llorente-Saguer, Aniol & Morton, Rebecca & Nicolò, Antonio, 2018. "Equilibrium selection in sequential games with imperfect information," Games and Economic Behavior, Elsevier, vol. 109(C), pages 465-483.

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    More about this item

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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